Equity markets fell sharply on Tuesday, as the Dow plunged more than 250 points and finished the day below 9,900. Trading was even worse for the broad benchmarks, as the S&P 500 slumped by 3.1% and the Nasdaq sank by close to 3.9% on the day. The steep drops came after news was released suggesting that growth was slowing in China and that American consumers are becoming less confident; data releases showed a sharp drop in the Conference Board’s confidence index, which fell from 62.7 down to 52.9 this month. “This is all part of the global economy we’re worried about; there just isn’t enough growth around to generate jobs,” said Jack Ablin, chief investment officer at Harris Private Bank.
The ETFdb 60 Index, a benchmark measuring the performance of asset classes available through ETFs, sunk by more than 20 points, or 2.0%. Significant losses in all equity components were only partially offset by gains in gold and fixed income securities; losers outnumbered winners by more than three-to-one.
One of the biggest losers on the day was iShares MSCI Brazil Index Fund (EWZ), which sank by 5.1% in Tuesday trading. This sharp drop came as growth cooled in China, which helped to temper the demand for many commodities, a staple of the Brazilian economy. “There’s some concern that China’s not the growth engine we thought it was,” said Len Blum, managing partner at Westwood Capital LLC. “A lot of investors have been hooking their dreams to China’s growth engine to pull us out of our problems. There’s certainly a fly in that ointment this morning.” This forecast of a sharp drop in demand sent EWZ, which has over 50% of its holdings in materials and energy, sharply lower on the day [see more of EWZ's holdings here].
One of the biggest gainers on the day was iPath S&P 500 VIX Short-Term Futures ETN (VXX), which surged ahead by 9.3% in today’s trading. This came as the S&P 500 slipped more than 30 points and finished at its lowest level thus far in 2010, a fact which sent many traders to the relative safety of gold and U.S. Treasury bills. Thanks to today’s market performance, VXX is within striking distance of breaking even for 2010; the fund is now down just 9.6% on the year. This comes after VXX has surged higher by 42.7% over the past three months and more than 20.8% over the past week [see more fundamentals of VXX here].
Disclosure: Eric is long EWZ.